Due Diligence Checklist for Buying an Existing Business
The due diligence process involves an in-depth investigation of the company you plan to buy. Every business purchase transaction is unique, but some common considerations include:
Are the company’s state LLC or corporate filings current and up to date?
Has the business filed and paid all its federal, state, and local taxes to date?
Are there unfavorable reviews or negative claims against the business online
Does the company hold any product patents or trademark registrations for logos or slogans used in the promotion of its goods or services?
Does the business have solid contracts with important suppliers and customers?
Does the business have firm leases for all of its operational facilities?
Are employees prohibited from disclosing confidential company information?
Does the company's employment agreement incentivize its employees to stay and stop them from competing with the business or soliciting away any of its clients?
Are the company's internal and employee policies current
Are the company’s financial statements sound and up to date?
Is the company currently the subject of any lawsuits or government investigations?
The due diligence process is critical from the buyer's perspective because you will likely become responsible for any liabilities owed by the business purchased once the transaction is complete.
Failing to properly investigate the company you want to buy could leave you with unexpected financial and legal problems and resultant losses after the transaction is complete. The due diligence investigation may even reveal negative issues that lead you to ultimately walk away from the transaction.
What Should Be Included in a Business Purchase Agreement?
The attorneys at The Kyle Law Firm will draft a business purchase agreement that accurately reflects the terms of the deal as agreed between you and the seller. The document helps protect both the buyer and seller from legal and financial risks that may come up after the business sale.
Your business purchase agreement should include:
Restrictive clauses – such as covenants not to compete, confidentiality clauses, non-solicitation clauses, and non-disclosure clauses
Liabilities that will be assumed by the buyer – such as any outstanding loans, unpaid vendor invoices, mortgage payments, or accounts payable balances
Assumption and assignment agreements – detailing the terms of the sale and how to distribute assets, liabilities, lease terms, and any other contractual obligation arising from the transaction.
Sale of assets – consented to and signed between the seller and buyer.
Depending on the specifics of the business you're buying, the purchase agreement may require additional provisions such as training and transition agreements or consulting or employment agreements. These keep the seller or other key personnel on board to help manage the business through the sale.
You may have to file other paperwork in addition to executing your business purchase agreement. That could include updating secretary of state filings, changing or updating the operating agreement, change in ownership forms for franchises, or resolutions authorizing the transaction from an entity’s board of directors or shareholders.
No matter what industry you are in or looking to get into, buying a business is a major undertaking with a lot at stake. You want to set yourself up for your best chance at success. This will require coordination and analysis of a great number of moving parts – financial, legal, and regulatory. The attorneys at The Kyle Law Firm can help, give us a call at: 225-293-8400 to discuss your options with a business lawyer dedicated to protecting your interests.